April 28, 2021
Hopefully, this is as crazy and weird as it’ll get in the financial markets… But don’t hold your breath.
You’re about to read a few details on what I believe is the most egregious example of speculative excess in the financial markets today. It also comes with a mysterious – and possibly sinister – twist that only adds to its entertainment value.
So sit down and hang on to your order number… you’re about to hear the bizarre tale of the billion-dollar deli.
And, of course, it’s out of New Jersey.
The Garden State GameStop?
The company is called Hometown International, headquartered in Woodstown, New Jersey — where roughly 3,500 people call home. And its stock trades over the counter (“OTC”) in the U.S. with the ticker HWIN.
Hometown’s entire business is owning and operating one location in Paulsboro, New Jersey — a town with around 6,000 residents about 20 minutes from Philadelphia.
The deli opened in October 2015. And it’s not exactly raking in the sales.
According to Hometown’s latest annual report, the company’s 2019 sales totaled $21,772. (I’m not leaving out any zeroes.) Like most restaurants across the U.S., the deli was closed from March to September last year because of COVID-19.
So, it did just $13,976 in sales for the year. That’s a little more than $35,000 in sales over the past two years.
During that same period, Hometown reported net losses totaling around $756,000. Again, I haven’t made any typos or left out any zeroes. It sold $35,000 and lost $756,000.
We’ll get to more on how it did that later.
But stay with me because here’s the kicker… Right now, Hometown has about 7.8 million shares outstanding. And the stock currently trades for about $13.25 per share, giving it a market cap of roughly $103 million.
That’s all you need to know to view this as one of the worst examples of speculative excess in the markets today. I don’t care how good the pastrami is. There’s no way a single deli that loses 21 times what it sells is worth $1 million, let alone more than $100 million.
Hometown Boardroom: Profiles in Absurdity
Hometown’s board has three directors and each of them has a brief biography in the company’s 2020 10-K filing with the SEC.
Paul Morina is Hometown’s CEO, chief financial officer, and treasurer. Morina’s bio is impressive – that is, if you’re looking for a great wrestling coach for your local high school.
In addition to serving as Paulsboro High School’s principal since 2008, Morina has been the school’s head wrestling coach since 1986. Over that span, he has led the Red Raiders to more than 1,000 victories, winning “25 class state championships, 24 district championships, and 25 conference titles.” Morina was also named State Wrestling Man of the Year by Wrestling USA Magazine in 1994.
Armed with this knowledge, it makes sense that the Hometown deli shares its property with “The Monster Factory” – a professional wrestling training school in business for more than 30 years. It has been called “the world’s most famous wrestling school” and has appeared in Rolling Stone, Newsweek, and the Wall Street Journal. (That’s all in the 10-K, too.)
Morina can throw you flat on your back in the early afternoon and then make you a mean corn beef sandwich to take home for dinner. That’s a talent not to be trifled with.
The second director profiled in the 10-K is Christine Lindenmuth. She’s listed as Hometown’s vice president and secretary. According to the 10-K write-up, she has taught math at Paulsboro High School for the past nine years.
Lindenmuth is also a representative for the Penns Grove chapter of the New Jersey teachers’ union. If you’ve seen the Martin Scorsese movie, The Irishman – which deals with the death of union boss Jimmy Hoffa – you know union folks can be a pretty tough bunch.
So remind me not to mess with Lindenmuth – lest I get a visit from a coupla good fellas, gabish? (And don’t waste your time writing in to tell me it’s “capisce”…)
So far, this tale is a little weird and highly amusing. A small-town New Jersey deli run by a couple of high school teachers has done roughly $35,000 in sales and lost $756,000 over the past two years. And yet, it’s somehow valued at $100 million in the stock market.
Once again, if that were the whole story, it would be another crazy sign of the highly speculative times we’re living in. It would be just my latest example to share in American Consequences.
It’s on par with Dogecoin, the cryptocurrency currently valued at $30 billion whose primary attraction is its relation to a popular Internet meme featuring a cute dog. And of course, we can’t forget about GameStop (GME), the brick-and-mortar video game retailer that rose from the dead to be valued in the market for more than $23 billion at one point this year.
We’ve written ad nauseam about the speculative froth everywhere in the stock market. So, the Hometown deli in New Jersey is just another fun example, right?
I don’t think so.
The Math of Speculation
First, Hometown International is far from a liquid stock. You’ll rarely see more than a few hundred shares exchange hands each day. And some days, it doesn’t trade at all.
The company issued 2.5 million shares at $1 each about a year ago – on April 15, 2020. Given that information and the tiny volume, it brings up the question… How did it get from $1 to more than $14 recently? (We’ll get into some of the insinuations about that later on.)
Second, the already absurd valuation is actually about 19 times higher than it looks…
You see, in addition to its outstanding shares and options totaling around 7.8 million, Hometown also has – hold your lunch down – 155.9 million outstanding warrants… all currently exercisable.
Add it all up and the fully diluted share count is 163.7 million shares.
Remember, shares currently trade at about $13.25. So, when you multiply that by 163.7 million shares, the fully diluted equity value of a single deli run by a wrestling genius and a math teacher is actually a little more than $2.1 billion. (Hat tip to Bloomberg’s Matt Levine.)
Again, that’s billion… with a “b.”
Many Americans keep demanding more and more from our government with a seemingly never-ending litany of demands. That’s why today, it’s critical to understand how these changes will affect you and your money. Get the full story here.
At the more than $100 million market cap, Hometown’s stock trades at around 4,600 times 2019 sales. (The company reported net losses both years.) That’s small potatoes, though. The company’s fully diluted $2.1 billion valuation comes to more than 96,000 times sales.
In his latest investor letter, hedge-fund manager David Einhorn set the spotlight on Hometown. And he cited what I interpret as a possible reason for the exorbitant valuation – the cold cuts must be amazing.
OK, all jokes aside, this is where the tale of the Hometown deli takes a sinister turn.
The third reason Hometown is not on par with GameStop or Dogecoin is the bizarre details surrounding who owns the stock, what their cohorts have done in the past, and what they might be up to today.
When The Questionable Turns Criminal
The wrestling coach and the math teacher were two of Hometown’s directors. But wait, there’s a third. While their 10-K mentions conjure up images worthy of Marty McFly discovering 1950s small-town America, the chairman’s bio feels a bit more like one of the villains in the latest James Bond spy saga.
The third bio is for Peter Coker Jr., who is listed as Hometown’s chairman of the board.
This part of the story is far too big and complex for one article. But I can definitely give you enough of the bizarre details reported recently by CNBC’s Dan Mangan (Hats off, Dan!) to suggest that Hometown’s small-town façade might be a cover for shady activities.
Now, I’m not a lawyer or a criminal investigator, so I can’t know for sure if anything illegal is actually going on here. I’m just looking at all the facts as they’re presented. And indeed, it sure seems that this could be why a tiny, loss-making deli is a public company at all.
Mangan reports that Coker and his father, Peter Coker Sr., are big Hometown shareholders. They’re connected with two overseas entities – one in Hong Kong and one in Macau. In other words, they’re tied to two places where rich people and criminals like to hide money.
And according to Mangan, Hometown is connected to another thinly traded OTC stock called E-Waste (EWST). Interestingly enough, E-Waste’s share price has soared lately, too, giving it a market cap of around $85 million recently… despite having no business operations.
That’s not all…
Tryon Capital Ventures – a North Carolina-based limited liability company founded and managed by the elder Coker – has a consulting contract with Hometown. Under the deal, Hometown pays Tryon $15,000 per month. (Overall, according to its 10-K, Hometown has paid more than $500,000 in consulting and professional fees over the past two years.)
In addition, E-Waste pays Tryon $2,500 per month for consulting services.
That might sound like a waste of money, but it isn’t necessarily illegal. Companies all over the U.S. burn money needlessly on consulting deals. Here’s where it gets interesting…
Tryon was used in a scheme to create sham consulting deals that obscured illegal campaign contributions to Bev Perdue, the soon-to-be governor of North Carolina, back in 2008. Coker Sr.’s former partner, Peter Reichard, was convicted in 2011 for his role in the scheme.
And a quick glance at the company’s annual report shows that $320,000 in consulting fees went through Hometown into the pockets of the Coker family. It sure seems that Hometown is much more than just the latest zany example of speculative excess. It doesn’t seem like it has much to do with making pastrami sandwiches at all.
If Mangan’s reporting is accurate – and we have no reason to believe otherwise – the obvious follow-up question is…
Are Tryon’s consulting deals with Hometown and E-Waste legit… or are they just like the company’s sham deals from a decade ago?
Lately, OTC Markets Group moved Hometown from the mid-tier OTCBQ trading platform to the “pink sheets” – the least prestigious OTC trading venue – due to public disclosure “irregularities.” Officials wouldn’t say whether they had contacted the SEC or not.
So we’ll see if the SEC… the No. 1 watchdog on Wall Street… and the same folks who let notorious swindler Bernie Madoff off the hook five times in nine years… will get on this case to figure out if there’s real fraud or some other type of crime going on here.
Hometown: Born to Crash
Whether most (or any) Hometown shareholders are innocent bystanders or not, it’s reasonable to expect the stock to collapse soon. The mystery has now been uncovered.
A single deli with $21,000 in annual (pre-pandemic) sales and six-figure net losses isn’t worth much at all – and certainly not $100 million. That’s true no matter how good the pastrami is. (I’m still open to the possibility that it’s really that good… But I’m skeptical.)
But assuming the stock is not a “zero” and that the business could survive a major scandal, the downside will still take current shareholders somewhere near the ninth circle of Hell…
You see, if all 155.9 million outstanding warrants were exercised and the market valuation fell to a mere 100 times sales, Hometown’s shares would trade for around $0.013 each. And remember, the warrants are exercisable right now… So let the landslide begin.
And at a P/S ratio of just 1 – which is arguably still expensive for a loss-producing, single-location restaurant owner – you wouldn’t find the share price with an electron microscope.
Don’t even think about shorting a stock that is this illiquid. If it can go from $1 to $13 per share, it can certainly go higher… Remember, never confuse a bull market with brains.
Hometown is the novelty story of the week. But I wouldn’t be surprised to see it return to the headlines again several months down the road… or perhaps become a typical bear market story one day (that is, if we ever get a bear market again).
It seems to have good potential to blow up and make even bigger headlines. Time will tell. In the meantime, please just avoid it, and be happy watching the fireworks from afar…
You’ll sleep much easier.
Love us? Hate us? Let us know how we’re doing at [email protected].
Contributing Editor, American Consequences
With Editorial Staff
April 28, 2021